Illustrations of Consumer Information for Hybrid Adjustable Rate Mortgage Products, 30997-31005 [E8-11850]
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Federal Register / Vol. 73, No. 104 / Thursday, May 29, 2008 / Notices
(202) 898–3842, Samuel Frumkin,
Senior Policy Analyst, Division of
Supervision and Consumer Protection,
(202) 898–6602; or Richard Foley,
Counsel, Legal Division, (202) 898–
3784.
OTS: Glenn Gimble, Senior Project
Manager, Compliance and Consumer
Protection Division, (202) 906–7158, or
Suzanne McQueen, Consumer
Regulations Analyst, Compliance and
Consumer Protection Division, (202)
906–6459.
NCUA: Matthew J. Biliouris, Program
Officer, Examination and Insurance,
(703) 518–6360.
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
[Docket ID OCC–2008–0007]
FEDERAL RESERVE SYSTEM
[Docket No. OP–1292]
FEDERAL DEPOSIT INSURANCE
CORPORATION
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket No. OTS–2008–0003]
NATIONAL CREDIT UNION
ADMINISTRATION
Illustrations of Consumer Information
for Hybrid Adjustable Rate Mortgage
Products
Office of the Comptroller of
the Currency, Treasury (OCC); Board of
Governors of the Federal Reserve
System (Board); Federal Deposit
Insurance Corporation (FDIC); Office of
Thrift Supervision, Treasury (OTS); and
National Credit Union Administration
(NCUA) (collectively, the Agencies).
ACTION: Final Guidance—Illustrations of
Consumer Information for Hybrid
Adjustable Rate Mortgage Products.
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AGENCIES:
SUMMARY: The Agencies are publishing
four documents that set forth
Illustrations of Consumer Information
for Hybrid Adjustable Rate Mortgage
Products. The illustrations are intended
to assist institutions in implementing
the consumer protection portion of the
Interagency Statement on Subprime
Mortgage Lending adopted on July 10,
2007, and in providing information to
consumers on hybrid adjustable rate
mortgage (ARM) products as
recommended by that interagency
statement. The illustrations are not
model forms and institutions may
choose not to use them.
EFFECTIVE DATE: May 29, 2008.
FOR FURTHER INFORMATION CONTACT:
OCC: Michael Bylsma, Director,
Stephen Van Meter, Assistant Director,
Carolle Kim, Attorney, Community and
Consumer Law Division, (202) 874–
5750; or Joseph A. Smith, Group Leader,
Mortgage Banking & Securitization,
Retail Credit Risk, (202) 874–5170.
Board: Kathleen C. Ryan, Counsel, or
Jamie Z. Goodson, Attorney, Division of
Consumer and Community Affairs, (202)
452–3667. For users of
Telecommunication Device for Deaf
only, call (202) 263–4869.
FDIC: Luke H. Brown, Associate
Director, Compliance Policy Branch,
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I. Background
On March 8, 2007, the Agencies
published the Interagency Statement on
Subprime Mortgage Lending (Subprime
Statement) for comment. 72 FR 10533
(March 8, 2007). After carefully
reviewing and considering all comments
received, the Agencies published the
Subprime Statement (applicable to all
banks and their subsidiaries, bank
holding companies and their nonbank
subsidiaries, savings institutions and
their subsidiaries, savings and loan
holding companies and their
subsidiaries, and credit unions) in final
form on July 10, 2007. 72 FR 37569 (July
10, 2007).
The Subprime Statement set forth
recommended practices to ensure that
consumers have clear and balanced
information about certain hybrid
adjustable rate mortgage products
during the product selection process,
not just upon submission of an
application or at consummation of the
loan. This information should address
the relative benefits and risks of these
products and describe their costs, terms,
features, and risks to the borrower.
Some industry group commenters on
the proposed Subprime Statement asked
the Agencies to provide uniform
disclosures for these products, or to
publish illustrations of the consumer
information contemplated by the
Subprime Statement similar to those
previously proposed by the Agencies in
connection with nontraditional
mortgage products. (These illustrations
were subsequently revised and
published in final form.1 ) The Agencies
determined that illustrations of the
consumer information contemplated by
the Subprime Statement may be useful
to institutions as they seek to ensure
that consumers receive the information
they need about the material features of
1 Illustrations of Consumer Information for
Nontraditional Mortgage Products, 72 FR 31825
(June 8, 2007).
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these loans. On August 14, 2007, the
Agencies published for comment two
Proposed Illustrations of Consumer
Information for Subprime Mortgage
Lending (Proposed Illustrations). 72 FR
45495 (Aug. 14, 2007).
The two Proposed Illustrations
consisted of (1) a narrative explanation
of some of the key features of certain
ARM loans that are identified in the
Subprime Statement, including payment
shock, responsibility for taxes and
insurance, prepayment penalties,2
balloon payments, and increased costs
associated with stated income or
reduced documentation loans, and (2) a
chart with numerical examples that is
designed to show the potential
consequences of payment shock in a
concrete, readily understandable
manner for a loan structured with a
discounted interest rate for the first two
years.
The Agencies requested comment on
all aspects of the Proposed Illustrations.
Specifically, commenters were asked to
address whether the illustrations, as
proposed, would be useful to
institutions, including community
banks, seeking to implement the
‘‘Consumer Protection Principles’’
portion of the Subprime Statement, or
whether changes should be made. The
Agencies also encouraged specific
comment on whether the illustrations,
as proposed, would be useful in
promoting consumer understanding of
the risks and material terms of certain
ARM products, as described in the
Subprime Statement, or whether
changes should be made. Additionally,
the Agencies sought comment on
whether the information in the
Proposed Illustrations is set forth in a
clear manner and format; whether these
illustrations or a modified form should
be adopted by the Agencies; and
whether additional illustrations relating
to certain ARM products would be
useful to consumers and institutions.
Finally, the Agencies requested
information on any consumer testing
that commenters may have conducted in
connection with comparable
disclosures.
After considering the comments
received, the Agencies are now issuing
final illustrations of consumer
information for certain hybrid ARMs.
The Subprime Statement recommended
that communications with consumers,
including advertisements, oral
statements, and promotional materials,
provide clear and balanced information
about the relative benefits, costs, terms,
features, and risks of certain ARM
2 Federal credit unions are prohibited from
charging prepayment penalties. 12 CFR 701.21.
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products to the borrower. This includes
information about the risk of payment
shock, the ramifications of prepayment
penalties, balloon payments, and a lack
of escrow for taxes and insurance, and
any pricing premium associated with a
stated income or reduced
documentation loan program.
Use of the illustrations is entirely
voluntary. Accordingly, there is no
Agency requirement or expectation that
institutions must use the illustrations in
their communications with consumers.
Institutions seeking to follow the
recommendations set forth in the
Subprime Statement may, at their
option, elect to:
• Use the illustrations;
• Provide information based on the
illustrations, but expand, abbreviate, or
otherwise tailor any information in the
illustrations as appropriate to reflect, for
example:
Æ The institution’s product
offerings, such as by deleting
information about loan products and
loan terms not offered by the institution
and by revising the illustrations to
reflect specific terms currently offered
by the institution;
Æ The consumer’s particular loan
requirements or qualifications;
Æ Current market conditions, such
as by changing the loan amounts,
interest rates, and corresponding
payment amounts to reflect current local
market circumstances;
Æ Other material information
relating to the loan consistent with the
Subprime Statement; and
Æ The results of consumer testing of
the illustrations or comparable
disclosures; or
• Provide the information described
in the Subprime Statement, as
appropriate, in an alternate format.
To assist institutions that wish to use
the illustrations, the Agencies will be
posting each of the illustrations on their
respective Web sites in a form that can
be downloaded and printed for easy
reproduction. The Agencies also will
develop and post Spanish-language
versions of the illustrations on their
respective Web sites. Additionally, in
response to concerns that the interest
rates used in Illustrations Nos. 2A, 2B,
and 2C may become outdated with
changes in market interest rates—and
consistent with the Agencies’ intention,
expressed above, that the illustrations
may be modified to reflect, among other
things, current market conditions—the
Agencies also will be posting on their
respective Web sites a template that can
be used by institutions that wish to
modify the information presented in
these illustrations to reflect more
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current interest rates (and
corresponding payment amounts).
II. Overview of the Comments
Collectively, the Agencies received
approximately 25 comment letters on
the proposal, including comments from
one federal regulatory agency, a group of
three associations of state banking and
consumer protection agencies, six
financial institutions, ten trade
organizations, two community
organizations, and five individuals.
Most commenters encouraged the
Agencies to adopt the illustrations.
These commenters stated that the
illustrations would be useful to
financial institutions, including
community banks, seeking to implement
the consumer protection principles of
the Subprime Statement. At least one
commenter also noted that the
illustrations would help reduce
implementation costs and compliance
burden.
Several trade organizations supported
making use of the illustrations
voluntary. These commenters also urged
the Agencies to notify their examiners
that use of the illustrations is not
required to show compliance with the
Subprime Statement. One of these
commenters stated that in developing
the illustrations the Agencies have
appropriately balanced the need for
institutions to provide meaningful
disclosures and the need to avoid
unnecessary burdens. On the other
hand, one community organization
advocated that use of the illustrations
should be made mandatory to prevent
consumer confusion due to lack of
uniform disclosures from lender to
lender.
Many commenters suggested that the
Proposed Illustrations could confuse
consumers about whether the
illustrations are describing features of
hybrid ARMs generally or, instead,
describing the mortgage they are
actually considering or being offered.
These commenters suggested modifying
the illustrations by revising statements
that appear specific to a particular
borrower and loan product. Other
commenters, however, suggested
modifying the illustrations so that they
would be based on the actual loan
product or product choices lenders will
offer to the particular applicant, and
include more loan-specific details.
Commenters also suggested changes
to make the illustrations more
accurately reflect the actual terms of
products prevalent in the market. For
example, it was noted that the
illustrations focused on hybrid ARM
products structured with a discounted
interest rate for the first two years. Due
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to recent market developments, such
products have become uncommon, and
have been replaced, to some extent, by
products with somewhat longer
discounted initial interest rate periods.
Finally, commenters made a number
of suggestions to change the wording,
format, or content of the illustrations in
order to improve the accuracy, clarity,
or usefulness of the illustrations for
consumers.
III. Final Illustrations
After carefully considering all of the
comments received, the Agencies have
decided to publish the proposed
illustrations in final form, with some
modifications.3 Additionally, the
Agencies believe that issuing these
materials as nonmandatory illustrations
will provide institutions with the
flexibility needed to tailor the materials
to their own circumstances and
consumer needs.
In response to commenter concerns,
the Agencies have made three sets of
changes to the proposed illustrations, as
described more fully below. The first
change relates to the language and
format of Illustration No. 1. The
Agencies have modified this illustration
so it clearly will be a general description
of the features of the products covered
by the Subprime Statement, rather than
a loan-specific disclosure. Second, the
Agencies have included additional
versions of Illustration No. 2 to provide
institutions with illustrations reflecting
products that may be more prevalent in
the market, and to show how
institutions might provide this
information when they offer multiple
products subject to the Subprime
Statement. Finally, the Agencies have
adopted a number of wording and
format changes to improve the
readability and usefulness of the
illustrations for consumers, and to make
it easier for consumers to understand
the key risks of the products covered by
the Subprime Statement.
A. Proposed Illustration No. 1
As noted above, several commenters
suggested that Illustration No. 1 should
generally describe features found in the
subprime ARM products covered by the
Subprime Statement. Given that the
Subprime Statement called for early
delivery—during the product selection
process—of the consumer information
contemplated in the Statement, the
Agencies agree that it could be
inappropriate and confusing for
Illustration No. 1 to appear to set forth
3 The Agencies are using a different title for this
final guidance than for the proposed guidance to
reflect more closely the types of mortgage products
covered by the Subprime Statement.
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specific loan terms. At this stage,
consumers have not yet selected a
specific loan, and institutions likely will
not have performed the credit
underwriting necessary to determine all
of the terms that may be offered to the
consumer. In view of these
uncertainties, and in light of the fact
that hybrid ARMs may include various
combinations of the risks and features
highlighted in the Subprime Statement,
it would not be possible for this
narrative description to convey loanspecific information in a way that
would be accurate or relevant for all
consumers. For these reasons,
attempting to include loan-specific
information would frustrate one of the
Agencies’ primary goals in issuing these
illustrations: Namely, to create a set of
documents that institutions can use to
satisfy the expectations outlined in the
Subprime Statement.4
Accordingly, in order to make clear
that this illustration is simply a generic
description of key risks and features that
may be found in the products covered
by the Subprime Statement, and to
improve readability and usefulness, the
Agencies have made substantial changes
to proposed Illustration No. 1, and have
adopted, to a large extent, the format
used in the Agencies’ nontraditional
mortgage product illustrations.5 Most
significantly, the document has been
revised and reformatted to emphasize
the risk of payment shock present in all
products covered by the Subprime
Statement, as opposed to other features
(such as prepayment penalties) that may
(or may not) be found in any particular
loan.6 These other features are now
described under a general heading,
‘‘Additional Information.’’ The Agencies
also believe that distinguishing between
the inherent and potential risks of these
products, and formatting the document
accordingly, helps to make the
document easier to use and understand.
The Agencies also have revised the
language in the subject matter headings
of the ‘‘Additional Information’’ portion
of the document. These changes are
designed to conform to the approach
used in the nontraditional mortgage
product illustrations and to clarify that
the features described therein are not
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4 In
this regard, the Agencies note that
institutions will continue to have obligations under
the Truth in Lending Act, Real Estate Settlement
Procedures Act, and other laws to provide
consumers with timely, loan-specific information.
5 Illustrations of Consumer Information for
Nontraditional Mortgage Products, 72 FR 31825
(June 8, 2007).
6 The title of this illustration also has been
revised, in response to commenter suggestions, to
stress that the document includes important facts
about any adjustable rate mortgage with a reduced
initial interest rate.
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necessarily included in the loan to be
offered to the consumer.
The Agencies also adopted several
suggestions from commenters to place
more emphasis on the nature of the risks
associated with obtaining a hybrid ARM
product of the type covered by the
Subprime Statement, and to focus
consumers’ attention on those risks. For
example, the Agencies have added
language directing consumers not to
assume that they will be able to
refinance their ARM to a lower rate in
the future. The final illustration also
states that consumers ‘‘need to know’’
whether the monthly payment includes
taxes and insurance, whether their loan
would have a prepayment penalty or
balloon payment, and whether obtaining
a ‘‘full documentation’’ loan would be
more cost-effective.
Other recommendations were adopted
by the Agencies to improve the clarity
or usefulness of the document for
consumers. For example, Illustration
No. 1 was modified to reflect interest
rate indexes more likely to be used by
lenders in the current market.
The Agencies decided not to adopt a
number of specific suggestions made by
commenters. Some of these suggestions
were largely duplicative of information
already contained in the document, or
otherwise would have made the
document too lengthy and less
consumer-friendly. Other comments
would have provided substantive advice
to consumers about particular features
and terms, and were inconsistent with
the purpose of the illustration to
provide important information in an
objective, balanced manner. One
commenter representing the credit
union industry suggested deleting the
reference to prepayment penalties in
Illustration No. 1 on the grounds that
federal credit unions are not permitted
to charge such penalties. The Agencies
did not adopt this suggestion, however,
because the illustrations are designed
for the use of all institutions supervised
by any of the Agencies. As noted above,
institutions may tailor the information
in the illustrations as appropriate to
reflect, for example, their own product
offerings. Other suggested changes that
were not adopted would not, in the
Agencies’ view, have enhanced the
clarity or usefulness of the illustration
for consumers.
B. Proposed Illustration No. 2
After reviewing and considering the
comments, the Agencies have retained
Proposed Illustration No. 2—a chart
comparing payment obligations on a
fixed rate loan and an ARM with a
discounted interest rate for the first two
years—but have re-designated the
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illustration as Illustration No. 2A. In
response to the comments and market
changes, the Agencies also have
included two additional versions of
Proposed Illustration No. 2 for
institutions to consider using.
Comments on Illustration No. 2, as well
as external data reviewed, indicate that
hybrid ARM products structured with a
discounted interest rate for the first five
years may have become more prevalent
in the current market than similar
products structured with a discounted
interest rate for the first two years.
Accordingly, the Agencies have added a
similar chart, designated as Illustration
No. 2B, that compares payment
obligations on a fixed rate loan and an
ARM with a discounted interest rate for
the first five years. Institutions may
believe that Illustration No. 2B is more
helpful than Illustration No. 2A to
consumers considering loans whose
initial rate remains in effect for a longer
period of time. In addition, the Agencies
have added a third chart, designated as
Illustration No. 2C, that compares
payment obligations on three products:
A fixed rate loan; an ARM with a
discounted interest rate for the first two
years; and an ARM with a discounted
rate for five years. Institutions that
would like to present information about
multiple products they offer on a single
page, rather than providing a separate
illustration for each product, may find
this third chart to be useful.7 The
Agencies also adopted a number of
minor wording changes, including
changes in the left column of the
illustration to clarify that the interest
rate conditions specified therein are
specifically referring to movement in
index interest rates, and not the interest
rate increases required by the terms of
the hybrid ARM loan. The Agencies also
changed the assumed interest rate
increase in the final row of the left
column to be more consistent with the
illustration’s assumptions about product
structure, and thereby less likely to
produce consumer confusion. The
Agencies did not adopt some
suggestions made by commenters
because they would require the
provision of loan-specific information
7 Illustrations Nos. 2A, 2B, and 2C reflect typical
interest rates for these products at the time the
Agencies issued the Subprime Statement, and
embody other assumptions about typical features of
these products. For example, they reflect
assumptions that: the fully-indexed rate is 4.5
percentage points higher than the initial rate (based
on an initial index rate of 5.5 percent and a margin
of 6 percent); the first interest rate adjustment
cannot exceed 3 percentage points; subsequent
interest rate adjustments may not exceed 1.5
percentage points; and the applicable interest rate
may never be more than 6 percentage points higher
than the initial rate.
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that could not feasibly or accurately be
presented in the early product selection
process. However, as noted above,
institutions that wish to modify the
information presented in these
illustrations will be able to access
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relevant templates on the respective
Web sites of the Agencies and insert
more loan-specific information. Some
recommendations also were not adopted
because, on balance, they would
unreasonably increase or duplicate the
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information already included or would
not otherwise appear to improve the
clarity or usefulness of the information
presented for consumers.
The final illustrations appear below.
BILLING CODE 4810–33–C, 6210–01–C, 6714–01–C,
6720–01–C, 7335–01–C
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Federal Register / Vol. 73, No. 104 / Thursday, May 29, 2008 / Notices
Dated: May 15, 2008.
John C. Dugan,
Comptroller of the Currency.
Background
By order of the Board of Governors of the
Federal Reserve System, May 20, 2008.
Robert deV. Frierson,
Deputy Secretary of the Board.
Dated at Washington, DC, the 19th day of
May, 2008.
By order of the Federal Deposit Insurance
Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: May 7, 2008.
By the Office of Thrift Supervision.
John Reich,
Director.
By the National Credit Union
Administration on May 20, 2008.
JoAnn M. Johnson,
Chairman.
[FR Doc. E8–11850 Filed 5–28–08; 8:45 am]
BILLING CODE 4810–33–P, 6210–01–P, 6714–01–P,
6720–01–P, 7535–01–P
DEPARTMENT OF THE TREASURY
Office of Foreign Assets Control
Changes to Identifying Information of
Entity Designated on May 15, 2008,
Pursuant to Executive Order 1312978
Office of Foreign Assets
Control, Treasury.
ACTION: Notice.
AGENCY:
jlentini on PROD1PC65 with NOTICES
SUMMARY: The Treasury Department’s
Office of Foreign Assets Control
(‘‘OFAC’’) is publishing changes to the
identifying information associated with
one entity previously designated on
May 15, 2008, pursuant to Executive
Order 13405 of June 16, 2006, ‘‘Blocking
Property of Certain Persons
Undermining Democratic Processes or
Institutions in Belarus.’’
DATES: The changes by the Director of
OFAC of the identifying information for
the entity identified in this notice
pursuant to Executive Order 13405 is
effective on May 20, 2008.
FOR FURTHER INFORMATION CONTACT:
Assistant Director, Compliance
Outreach & Implementation, Office of
Foreign Assets Control, Department of
the Treasury, Washington, DC 20220,
tel.: 202/622–2490.
SUPPLEMENTARY INFORMATION:
Electronic and Facsimile Availability
This document and additional
information concerning OFAC are
available from OFAC’s Web site
(https://www.treas.gov/ofac) or via
facsimile through a 24-hour fax-on
demand service, tel.: (202) 622–0077.
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On June 16, 2006, the President
issued Executive Order 13405 (the
‘‘Order’’) pursuant to, inter alia, the
International Emergency Economic
Powers Act (50 U.S.C. 1701–06). In the
Order, the President declared a national
emergency to address political
repression, electoral fraud, and public
corruption in Belarus. The Order
imposes economic sanctions on persons
responsible for actions or policies that
undermine democratic processes or
institutions in Belarus. The President
identified ten individuals as subject to
the economic sanctions in the Annex to
the Order.
Section 1 of the Order blocks, with
certain exceptions, all property, and
interests in property, that are in, or
hereafter come within, the United States
or the possession or control of United
States persons for persons listed in the
Annex and those persons determined by
the Secretary of the Treasury, after
consultation with the Secretary of State,
to satisfy any of the criteria set forth in
subparagraphs (a)(ii)(A) through
(a)(ii)(E) of Section 1.
On May 15, 2008, the Director of
OFAC, in consultation with the
Secretary of State, designated, pursuant
to one or more of the criteria set forth
in Section 1, subparagraphs (a)(ii)(A)
through (a)(ii)(E) of the Order, three
entities whose names have been added
to the list of Specially Designated
Nationals and whose property and
interests in property are blocked,
pursuant to the Order.
OFAC has made changes to the
identifying information associated with
the following entity previously
designated on May 15, 2008, pursuant to
the Order:
1. BELARUSIAN OIL TRADE HOUSE
(a.k.a. BELARUSIAN OIL TRADING
HOUSE; a.k.a. BELARUSIAN OIL
TRADING HOUSE REPUBLICAN
SUBSIDIARY UNITARY ENTERPRISE;
a.k.a. BELARUSIAN OIL TRADING
HOUSE REPUBLICAN UNITARY
SUBSIDIARY; a.k.a. BOTH; a.k.a. UE
BELARUSIAN OIL TRADE HOUSE),
Dzerzhinsky Avenue, 73, Minsk 220116,
Belarus; Prospect Dzerzhinskogo, 73,
Minsk 220116, Belarus; 73 Derzhinsky
Ave., Minsk 220116, Belarus; Business
Registration Document # UNP
101119568 (Belarus) [BELARUS].
The listing now appears as the
following:
1. BELARUSIAN OIL TRADE HOUSE
(a.k.a. BELARUSIAN OIL TRADING
HOUSE; a.k.a. BELARUSIAN OIL
TRADING HOUSE REPUBLICAN
SUBSIDIARY UNITARY ENTERPRISE;
a.k.a. BELARUSIAN OIL TRADING
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HOUSE REPUBLICAN UNITARY
SUBSIDIARY; a.k.a. BOTH; a.k.a. UE
BELARUSIAN OIL TRADE HOUSE,
a.k.a. UNITED TRADING SITE, a.k.a.
WWW.BNTDTORG.BY, a.k.a.
WWW.BNTD.BY), Dzerzhinsky Avenue,
73, Minsk 220116, Belarus; Prospect
Dzerzhinskogo, 73, Minsk 220116,
Belarus; 73 Derzhinsky Ave., Minsk
220116, Belarus; Business Registration
Document # UNP 101119568 (Belarus)
[BELARUS]
Dated: May 20, 2008.
Adam J. Szubin,
Director, Office of Foreign Assets Control.
[FR Doc. E8–11987 Filed 5–28–08; 8:45 am]
BILLING CODE 4811–45–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
Open Meeting of the Taxpayer
Assistance Center Committee of the
Taxpayer Advocacy Panel
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of Meeting.
AGENCY:
SUMMARY: An open meeting of the
Taxpayer Assistance Center Committee
of the Taxpayer Advocacy Panel will be
conducted (via teleconference). The
Taxpayer Advocacy Panel (TAP) is
soliciting public comments, ideas, and
suggestions on improving customer
service at the Internal Revenue Service.
DATES: The meeting will be held
Tuesday, July 22, 2008.
FOR FURTHER INFORMATION CONTACT:
Dave Coffman at 1–888–912–1227 or
206–220–6096.
SUPPLEMENTARY INFORMATION: Notice is
hereby given pursuant to Section
10(a)(2) of the Federal Advisory
Committee Act, 5 U.S.C. App. (1988)
that an open meeting of the Taxpayer
Assistance Center Committee of the
Taxpayer Advocacy Panel will be held
Tuesday, July 22, 2008, from 9 am.
Pacific Time to 10:30 a.m. Pacific Time
via a telephone conference call. If you
would like to have the TAP consider a
written statement, please call 1–888–
912–1227 or 206–220–6096, or write to
Dave Coffman, TAP Office, 915 2nd
Avenue, MS W–406, Seattle, WA 98174.
Due to limited conference lines,
notification of intent to participate in
the telephone conference call meeting
must be made with Dave Coffman. Mr.
Coffman can be reached at 1–888–912–
1227 or 206–220–6096, or you can
contact us at https://www.improveirs.org.
The agenda will include the
following: Various IRS issues.
E:\FR\FM\29MYN1.SGM
29MYN1
]]>Agencies
[Federal Register Volume 73, Number 104 (Thursday, May 29, 2008)]
[Notices]
[Pages 30997-31005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-11850]
[[Page 30997]]
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DEPARTMENT OF THE TREASURY
Office of the Comptroller of the Currency
[Docket ID OCC-2008-0007]
FEDERAL RESERVE SYSTEM
[Docket No. OP-1292]
FEDERAL DEPOSIT INSURANCE CORPORATION
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
[Docket No. OTS-2008-0003]
NATIONAL CREDIT UNION ADMINISTRATION
Illustrations of Consumer Information for Hybrid Adjustable Rate
Mortgage Products
AGENCIES: Office of the Comptroller of the Currency, Treasury (OCC);
Board of Governors of the Federal Reserve System (Board); Federal
Deposit Insurance Corporation (FDIC); Office of Thrift Supervision,
Treasury (OTS); and National Credit Union Administration (NCUA)
(collectively, the Agencies).
ACTION: Final Guidance--Illustrations of Consumer Information for
Hybrid Adjustable Rate Mortgage Products.
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SUMMARY: The Agencies are publishing four documents that set forth
Illustrations of Consumer Information for Hybrid Adjustable Rate
Mortgage Products. The illustrations are intended to assist
institutions in implementing the consumer protection portion of the
Interagency Statement on Subprime Mortgage Lending adopted on July 10,
2007, and in providing information to consumers on hybrid adjustable
rate mortgage (ARM) products as recommended by that interagency
statement. The illustrations are not model forms and institutions may
choose not to use them.
EFFECTIVE DATE: May 29, 2008.
FOR FURTHER INFORMATION CONTACT:
OCC: Michael Bylsma, Director, Stephen Van Meter, Assistant
Director, Carolle Kim, Attorney, Community and Consumer Law Division,
(202) 874-5750; or Joseph A. Smith, Group Leader, Mortgage Banking &
Securitization, Retail Credit Risk, (202) 874-5170.
Board: Kathleen C. Ryan, Counsel, or Jamie Z. Goodson, Attorney,
Division of Consumer and Community Affairs, (202) 452-3667. For users
of Telecommunication Device for Deaf only, call (202) 263-4869.
FDIC: Luke H. Brown, Associate Director, Compliance Policy Branch,
(202) 898-3842, Samuel Frumkin, Senior Policy Analyst, Division of
Supervision and Consumer Protection, (202) 898-6602; or Richard Foley,
Counsel, Legal Division, (202) 898-3784.
OTS: Glenn Gimble, Senior Project Manager, Compliance and Consumer
Protection Division, (202) 906-7158, or Suzanne McQueen, Consumer
Regulations Analyst, Compliance and Consumer Protection Division, (202)
906-6459.
NCUA: Matthew J. Biliouris, Program Officer, Examination and
Insurance, (703) 518-6360.
SUPPLEMENTARY INFORMATION:
I. Background
On March 8, 2007, the Agencies published the Interagency Statement
on Subprime Mortgage Lending (Subprime Statement) for comment. 72 FR
10533 (March 8, 2007). After carefully reviewing and considering all
comments received, the Agencies published the Subprime Statement
(applicable to all banks and their subsidiaries, bank holding companies
and their nonbank subsidiaries, savings institutions and their
subsidiaries, savings and loan holding companies and their
subsidiaries, and credit unions) in final form on July 10, 2007. 72 FR
37569 (July 10, 2007).
The Subprime Statement set forth recommended practices to ensure
that consumers have clear and balanced information about certain hybrid
adjustable rate mortgage products during the product selection process,
not just upon submission of an application or at consummation of the
loan. This information should address the relative benefits and risks
of these products and describe their costs, terms, features, and risks
to the borrower.
Some industry group commenters on the proposed Subprime Statement
asked the Agencies to provide uniform disclosures for these products,
or to publish illustrations of the consumer information contemplated by
the Subprime Statement similar to those previously proposed by the
Agencies in connection with nontraditional mortgage products. (These
illustrations were subsequently revised and published in final form.\1\
) The Agencies determined that illustrations of the consumer
information contemplated by the Subprime Statement may be useful to
institutions as they seek to ensure that consumers receive the
information they need about the material features of these loans. On
August 14, 2007, the Agencies published for comment two Proposed
Illustrations of Consumer Information for Subprime Mortgage Lending
(Proposed Illustrations). 72 FR 45495 (Aug. 14, 2007).
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\1\ Illustrations of Consumer Information for Nontraditional
Mortgage Products, 72 FR 31825 (June 8, 2007).
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The two Proposed Illustrations consisted of (1) a narrative
explanation of some of the key features of certain ARM loans that are
identified in the Subprime Statement, including payment shock,
responsibility for taxes and insurance, prepayment penalties,\2\
balloon payments, and increased costs associated with stated income or
reduced documentation loans, and (2) a chart with numerical examples
that is designed to show the potential consequences of payment shock in
a concrete, readily understandable manner for a loan structured with a
discounted interest rate for the first two years.
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\2\ Federal credit unions are prohibited from charging
prepayment penalties. 12 CFR 701.21.
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The Agencies requested comment on all aspects of the Proposed
Illustrations. Specifically, commenters were asked to address whether
the illustrations, as proposed, would be useful to institutions,
including community banks, seeking to implement the ``Consumer
Protection Principles'' portion of the Subprime Statement, or whether
changes should be made. The Agencies also encouraged specific comment
on whether the illustrations, as proposed, would be useful in promoting
consumer understanding of the risks and material terms of certain ARM
products, as described in the Subprime Statement, or whether changes
should be made. Additionally, the Agencies sought comment on whether
the information in the Proposed Illustrations is set forth in a clear
manner and format; whether these illustrations or a modified form
should be adopted by the Agencies; and whether additional illustrations
relating to certain ARM products would be useful to consumers and
institutions. Finally, the Agencies requested information on any
consumer testing that commenters may have conducted in connection with
comparable disclosures.
After considering the comments received, the Agencies are now
issuing final illustrations of consumer information for certain hybrid
ARMs. The Subprime Statement recommended that communications with
consumers, including advertisements, oral statements, and promotional
materials, provide clear and balanced information about the relative
benefits, costs, terms, features, and risks of certain ARM
[[Page 30998]]
products to the borrower. This includes information about the risk of
payment shock, the ramifications of prepayment penalties, balloon
payments, and a lack of escrow for taxes and insurance, and any pricing
premium associated with a stated income or reduced documentation loan
program.
Use of the illustrations is entirely voluntary. Accordingly, there
is no Agency requirement or expectation that institutions must use the
illustrations in their communications with consumers. Institutions
seeking to follow the recommendations set forth in the Subprime
Statement may, at their option, elect to:
Use the illustrations;
Provide information based on the illustrations, but
expand, abbreviate, or otherwise tailor any information in the
illustrations as appropriate to reflect, for example:
[cir] The institution's product offerings, such as by deleting
information about loan products and loan terms not offered by the
institution and by revising the illustrations to reflect specific terms
currently offered by the institution;
[cir] The consumer's particular loan requirements or
qualifications;
[cir] Current market conditions, such as by changing the loan
amounts, interest rates, and corresponding payment amounts to reflect
current local market circumstances;
[cir] Other material information relating to the loan consistent
with the Subprime Statement; and
[cir] The results of consumer testing of the illustrations or
comparable disclosures; or
Provide the information described in the Subprime
Statement, as appropriate, in an alternate format.
To assist institutions that wish to use the illustrations, the
Agencies will be posting each of the illustrations on their respective
Web sites in a form that can be downloaded and printed for easy
reproduction. The Agencies also will develop and post Spanish-language
versions of the illustrations on their respective Web sites.
Additionally, in response to concerns that the interest rates used in
Illustrations Nos. 2A, 2B, and 2C may become outdated with changes in
market interest rates--and consistent with the Agencies' intention,
expressed above, that the illustrations may be modified to reflect,
among other things, current market conditions--the Agencies also will
be posting on their respective Web sites a template that can be used by
institutions that wish to modify the information presented in these
illustrations to reflect more current interest rates (and corresponding
payment amounts).
II. Overview of the Comments
Collectively, the Agencies received approximately 25 comment
letters on the proposal, including comments from one federal regulatory
agency, a group of three associations of state banking and consumer
protection agencies, six financial institutions, ten trade
organizations, two community organizations, and five individuals.
Most commenters encouraged the Agencies to adopt the illustrations.
These commenters stated that the illustrations would be useful to
financial institutions, including community banks, seeking to implement
the consumer protection principles of the Subprime Statement. At least
one commenter also noted that the illustrations would help reduce
implementation costs and compliance burden.
Several trade organizations supported making use of the
illustrations voluntary. These commenters also urged the Agencies to
notify their examiners that use of the illustrations is not required to
show compliance with the Subprime Statement. One of these commenters
stated that in developing the illustrations the Agencies have
appropriately balanced the need for institutions to provide meaningful
disclosures and the need to avoid unnecessary burdens. On the other
hand, one community organization advocated that use of the
illustrations should be made mandatory to prevent consumer confusion
due to lack of uniform disclosures from lender to lender.
Many commenters suggested that the Proposed Illustrations could
confuse consumers about whether the illustrations are describing
features of hybrid ARMs generally or, instead, describing the mortgage
they are actually considering or being offered. These commenters
suggested modifying the illustrations by revising statements that
appear specific to a particular borrower and loan product. Other
commenters, however, suggested modifying the illustrations so that they
would be based on the actual loan product or product choices lenders
will offer to the particular applicant, and include more loan-specific
details.
Commenters also suggested changes to make the illustrations more
accurately reflect the actual terms of products prevalent in the
market. For example, it was noted that the illustrations focused on
hybrid ARM products structured with a discounted interest rate for the
first two years. Due to recent market developments, such products have
become uncommon, and have been replaced, to some extent, by products
with somewhat longer discounted initial interest rate periods.
Finally, commenters made a number of suggestions to change the
wording, format, or content of the illustrations in order to improve
the accuracy, clarity, or usefulness of the illustrations for
consumers.
III. Final Illustrations
After carefully considering all of the comments received, the
Agencies have decided to publish the proposed illustrations in final
form, with some modifications.\3\ Additionally, the Agencies believe
that issuing these materials as nonmandatory illustrations will provide
institutions with the flexibility needed to tailor the materials to
their own circumstances and consumer needs.
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\3\ The Agencies are using a different title for this final
guidance than for the proposed guidance to reflect more closely the
types of mortgage products covered by the Subprime Statement.
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In response to commenter concerns, the Agencies have made three
sets of changes to the proposed illustrations, as described more fully
below. The first change relates to the language and format of
Illustration No. 1. The Agencies have modified this illustration so it
clearly will be a general description of the features of the products
covered by the Subprime Statement, rather than a loan-specific
disclosure. Second, the Agencies have included additional versions of
Illustration No. 2 to provide institutions with illustrations
reflecting products that may be more prevalent in the market, and to
show how institutions might provide this information when they offer
multiple products subject to the Subprime Statement. Finally, the
Agencies have adopted a number of wording and format changes to improve
the readability and usefulness of the illustrations for consumers, and
to make it easier for consumers to understand the key risks of the
products covered by the Subprime Statement.
A. Proposed Illustration No. 1
As noted above, several commenters suggested that Illustration No.
1 should generally describe features found in the subprime ARM products
covered by the Subprime Statement. Given that the Subprime Statement
called for early delivery--during the product selection process--of the
consumer information contemplated in the Statement, the Agencies agree
that it could be inappropriate and confusing for Illustration No. 1 to
appear to set forth
[[Page 30999]]
specific loan terms. At this stage, consumers have not yet selected a
specific loan, and institutions likely will not have performed the
credit underwriting necessary to determine all of the terms that may be
offered to the consumer. In view of these uncertainties, and in light
of the fact that hybrid ARMs may include various combinations of the
risks and features highlighted in the Subprime Statement, it would not
be possible for this narrative description to convey loan-specific
information in a way that would be accurate or relevant for all
consumers. For these reasons, attempting to include loan-specific
information would frustrate one of the Agencies' primary goals in
issuing these illustrations: Namely, to create a set of documents that
institutions can use to satisfy the expectations outlined in the
Subprime Statement.\4\
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\4\ In this regard, the Agencies note that institutions will
continue to have obligations under the Truth in Lending Act, Real
Estate Settlement Procedures Act, and other laws to provide
consumers with timely, loan-specific information.
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Accordingly, in order to make clear that this illustration is
simply a generic description of key risks and features that may be
found in the products covered by the Subprime Statement, and to improve
readability and usefulness, the Agencies have made substantial changes
to proposed Illustration No. 1, and have adopted, to a large extent,
the format used in the Agencies' nontraditional mortgage product
illustrations.\5\ Most significantly, the document has been revised and
reformatted to emphasize the risk of payment shock present in all
products covered by the Subprime Statement, as opposed to other
features (such as prepayment penalties) that may (or may not) be found
in any particular loan.\6\ These other features are now described under
a general heading, ``Additional Information.'' The Agencies also
believe that distinguishing between the inherent and potential risks of
these products, and formatting the document accordingly, helps to make
the document easier to use and understand. The Agencies also have
revised the language in the subject matter headings of the ``Additional
Information'' portion of the document. These changes are designed to
conform to the approach used in the nontraditional mortgage product
illustrations and to clarify that the features described therein are
not necessarily included in the loan to be offered to the consumer.
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\5\ Illustrations of Consumer Information for Nontraditional
Mortgage Products, 72 FR 31825 (June 8, 2007).
\6\ The title of this illustration also has been revised, in
response to commenter suggestions, to stress that the document
includes important facts about any adjustable rate mortgage with a
reduced initial interest rate.
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The Agencies also adopted several suggestions from commenters to
place more emphasis on the nature of the risks associated with
obtaining a hybrid ARM product of the type covered by the Subprime
Statement, and to focus consumers' attention on those risks. For
example, the Agencies have added language directing consumers not to
assume that they will be able to refinance their ARM to a lower rate in
the future. The final illustration also states that consumers ``need to
know'' whether the monthly payment includes taxes and insurance,
whether their loan would have a prepayment penalty or balloon payment,
and whether obtaining a ``full documentation'' loan would be more cost-
effective.
Other recommendations were adopted by the Agencies to improve the
clarity or usefulness of the document for consumers. For example,
Illustration No. 1 was modified to reflect interest rate indexes more
likely to be used by lenders in the current market.
The Agencies decided not to adopt a number of specific suggestions
made by commenters. Some of these suggestions were largely duplicative
of information already contained in the document, or otherwise would
have made the document too lengthy and less consumer-friendly. Other
comments would have provided substantive advice to consumers about
particular features and terms, and were inconsistent with the purpose
of the illustration to provide important information in an objective,
balanced manner. One commenter representing the credit union industry
suggested deleting the reference to prepayment penalties in
Illustration No. 1 on the grounds that federal credit unions are not
permitted to charge such penalties. The Agencies did not adopt this
suggestion, however, because the illustrations are designed for the use
of all institutions supervised by any of the Agencies. As noted above,
institutions may tailor the information in the illustrations as
appropriate to reflect, for example, their own product offerings. Other
suggested changes that were not adopted would not, in the Agencies'
view, have enhanced the clarity or usefulness of the illustration for
consumers.
B. Proposed Illustration No. 2
After reviewing and considering the comments, the Agencies have
retained Proposed Illustration No. 2--a chart comparing payment
obligations on a fixed rate loan and an ARM with a discounted interest
rate for the first two years--but have re-designated the illustration
as Illustration No. 2A. In response to the comments and market changes,
the Agencies also have included two additional versions of Proposed
Illustration No. 2 for institutions to consider using. Comments on
Illustration No. 2, as well as external data reviewed, indicate that
hybrid ARM products structured with a discounted interest rate for the
first five years may have become more prevalent in the current market
than similar products structured with a discounted interest rate for
the first two years. Accordingly, the Agencies have added a similar
chart, designated as Illustration No. 2B, that compares payment
obligations on a fixed rate loan and an ARM with a discounted interest
rate for the first five years. Institutions may believe that
Illustration No. 2B is more helpful than Illustration No. 2A to
consumers considering loans whose initial rate remains in effect for a
longer period of time. In addition, the Agencies have added a third
chart, designated as Illustration No. 2C, that compares payment
obligations on three products: A fixed rate loan; an ARM with a
discounted interest rate for the first two years; and an ARM with a
discounted rate for five years. Institutions that would like to present
information about multiple products they offer on a single page, rather
than providing a separate illustration for each product, may find this
third chart to be useful.\7\ The Agencies also adopted a number of
minor wording changes, including changes in the left column of the
illustration to clarify that the interest rate conditions specified
therein are specifically referring to movement in index interest rates,
and not the interest rate increases required by the terms of the hybrid
ARM loan. The Agencies also changed the assumed interest rate increase
in the final row of the left column to be more consistent with the
illustration's assumptions about product structure, and thereby less
likely to produce consumer confusion. The Agencies did not adopt some
suggestions made by commenters because they would require the provision
of loan-specific information
[[Page 31000]]
that could not feasibly or accurately be presented in the early product
selection process. However, as noted above, institutions that wish to
modify the information presented in these illustrations will be able to
access relevant templates on the respective Web sites of the Agencies
and insert more loan-specific information. Some recommendations also
were not adopted because, on balance, they would unreasonably increase
or duplicate the information already included or would not otherwise
appear to improve the clarity or usefulness of the information
presented for consumers.
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\7\ Illustrations Nos. 2A, 2B, and 2C reflect typical interest
rates for these products at the time the Agencies issued the
Subprime Statement, and embody other assumptions about typical
features of these products. For example, they reflect assumptions
that: the fully-indexed rate is 4.5 percentage points higher than
the initial rate (based on an initial index rate of 5.5 percent and
a margin of 6 percent); the first interest rate adjustment cannot
exceed 3 percentage points; subsequent interest rate adjustments may
not exceed 1.5 percentage points; and the applicable interest rate
may never be more than 6 percentage points higher than the initial
rate.
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The final illustrations appear below.
BILLING CODE 4810-33-C, 6210-01-C, 6714-01-C, 6720-01-C, 7335-01-C
[[Page 31001]]
[GRAPHIC] [TIFF OMITTED] TN29MY08.006
[[Page 31002]]
[GRAPHIC] [TIFF OMITTED] TN29MY08.007
[[Page 31003]]
[GRAPHIC] [TIFF OMITTED] TN29MY08.008
[[Page 31004]]
[GRAPHIC] [TIFF OMITTED] TN29MY08.009
[[Page 31005]]
Dated: May 15, 2008.
John C. Dugan,
Comptroller of the Currency.
By order of the Board of Governors of the Federal Reserve
System, May 20, 2008.
Robert deV. Frierson,
Deputy Secretary of the Board.
Dated at Washington, DC, the 19th day of May, 2008.
By order of the Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
Dated: May 7, 2008.
By the Office of Thrift Supervision.
John Reich,
Director.
By the National Credit Union Administration on May 20, 2008.
JoAnn M. Johnson,
Chairman.
[FR Doc. E8-11850 Filed 5-28-08; 8:45 am]
BILLING CODE 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P, 7535-01-P
